‘An accident waiting to happen’
U.S. investors betting on a crash in the Canadian housing market
VANCOUVER — Wall Street investors who made billions when the U.S. housing market collapsed in 2008 are now betting real estate values in Vancouver and other Canadian cities will crash, financial insiders say.
The hedge fund investors, known as short sellers, are betting against what they believe is a housing bubble in Vancouver, Toronto, Calgary and other Canadian cities. They believe Canadians hold too much mortgage debt, and that Canadian banks, mortgage insurers and “subprime” private lenders will lose money on unpaid loans when property prices fall.
“The cross currents are beyond crazy in Vancouver — it’s a mix of money laundering, speculation, low interest rates,” said Marc Cohodes, once called Wall Street’s highest-profile short-seller by The New York Times. “A house is something you live in, but in Vancouver you guys are trading them like the penny stocks on Howe Street.”
He says Vancouver real estate has reached peak insanity, and any number of factors could trigger a collapse.
Local real estate professionals predicted the U.S. investors are likely to lose their shirts betting against Vancouver property, which they described as a special market thriving on international demand.
But one Canadian housing analyst who advises U.S. clients, including Cohodes, said major investors are currently “building positions” against Canadian housing targets. They are forecasting a raise in historically low U.S. interest rates this fall will spill financial stress into Canada.
“All of the big global macro funds that were involved in betting against the U.S. in 2007 and 2008 and 2009, they’ve all studied Canadian housing for a few years,” said the Canadian analyst, who asked not to be named because of client confidentiality. “I know a number of them are shorting Canadian housing. It looks like an accident waiting to happen.”
This is despite the fact that housing markets in Vancouver and Toronto have continued to rocket higher since international short-sellers started circling in 2013.
Short sellers use complex financial arrangements to make rapid profits when publicly traded stocks fall in value. In this case, they are betting against businesses connected to property and household debt. They are also betting against the Canadian dollar, because they believe it will decline significantly in a housing bust.
Cohodes noted short-selling bets against big Canadian banks have doubled in New York markets in the past several months. And the risk of a sharp housing correction connected to Canadians’ high household debt has risen since December, the Bank of Canada recently reported.